Here’s a Good Joke: New Income Tax Data Shows India Has Only 20 Lakh Landlords


In yesterday’s column I had mentioned that only around 26 lakh Indians (to be precise the number is 26,01,777) filed for income from house property under the individual category, for the assessment year 2012-2013.

During the assessment year 2012-2013, income tax returns for the income earned during the year 2011-2012 had to be filed. A total income of Rs 29,927 crore was declared under this category.

Of this around 6.06 lakh individuals showed an income of less than zero from house property. This would primarily include people who have taken on a home loan to buy a house and are repaying it. During the financial year 2011-2012, an interest of up to Rs 1.5 lakh, paid on a home loan, in case of a self-occupied house, could be set off while calculating taxable income.

This meant that an individual repaying a home loan on a self-occupied house, could show a negative income of up to Rs 1.5 lakh when it came to income from house property. These are the individuals showing negative income against their house property. This negative income could be set off against taxable income and the taxable income could bethus  brought down.

Further, the limit of Rs 1.5 lakh applied only to self-occupied property and not on other homes that a tax payer may choose to buy by taking on a home loan. Any amount of interest paid on such home loans can be claimed as a deduction as long as a “notional rent” is added to the income.

We all know that over the last few years the “rents” have been very low in comparison to the EMIs that need to be paid in order to repay the home loan. The rental yield (rent dividend by market value of the home) is in the region of 2-3%.

Even after deducting a notional rent, the interest component tends to be massive during the initial years. Hence, the difference between the notional rent and the interest paid is negative. This essentially means income from house property is negative. Such individuals who own more than one home financed through a home loan, also earn a negative income from their house property. This negative income helps people with two or more homes, claim huge tax deductions.

This “deduction” has been used over the years by well-paid corporate employees to bring down their taxable income. Further, individuals who use this deduction benefit on two fronts—tax deduction as well as capital appreciation.

Even if, the capital appreciation is not huge, such individuals are happy in claiming just the deduction than actually making money from an increase in price. Hence, they may not sell the flat, even in a scenario where prices may be falling and thus prevent a faster fall in home prices.

Getting back to the point, there were only 6.06 lakh individuals in the assessment year 2012-2013 who had an income of less than zero or a negative income from house property. As I said, these are people essentially repaying their home loans. The interest they pay on their home loans can be set off against taxable income.

It is worth asking here that does India have less than 6.06 lakh individuals living in self-occupied homes on which home loans are being repaid? Something just doesn’t add up here. Honestly, this is bizarre.

As a newsreport in The Economic Times points out:In 2011, the number of accounts was 47.32 lakh, which went up to 47.78 lakh in 2012, with the disbursed amount also increasing from Rs 2.5 lakh crore to Rs 2.6 lakh crore.

If the banks had close to 47-48 lakh home loan accounts in 2011 and 2012, why are only around 6.06 lakh showing up in the income tax data?

Also, around 19.95 lakh people declared an income from house property in assessment year 2011-2012. This is another extremely low number. What does this mean? It means that the number of individuals in India who are earning a rental income from their homes (real as well as notional) is around 20 lakh. How is that possible?  It means is that there are around 20 lakh landlords in the country, if the data from the Income Tax department is to be believed.

It is worth recounting here something that Akhilesh Tilotia writes in The Making of India based on the 2011 Census data: India’s households increased by 60 million to 247 million from 187 million between 2001-2011. Reflecting India’s higher ‘physical’ savings, the number of houses went up by 81 million to 331 million from 250 million. The urban increases is telling: 38 million new houses for 24 million new households.”

This means India had 331 million or 33.1 crore houses in 2011. Now compare this with the fact that there are around 20 lakh individuals earning a rental income from their homes. This comparison clearly tells us how low the 19.95 lakh number, really is.

There are two things that become clear here. One, is that many individuals are just buying up homes as an investment and not putting it up on rent. Anshuman Magazine, chairman and managing director of CBRE South Asia Pvt. Ltd., in a 2015 article wrote that “around 1.2 crore completed houses” are “lying vacant across urban India”.

Further, this is a clear indication of the fact that most landlords are getting their rents paid in cash and not paying any income tax on it. It also leads to the question where did these people earn the money to build these houses in the first place?

Here is another interesting data point—Of the 19.95 lakh who have some rental income, around 14.55 lakh have an average rental income of around Rs 60,000 per year or Rs 5,000 per month. This number is very low as well.

The point being a major part of the black money in India continues to be generated in the real estate sector. The general impression we have had up until now is that black money is generated when real estate is bought and sold. Nevertheless, with this new data it is very clear, that black money is generated even when real estate is rented out.

The column originally appeared on the Vivek Kaul Diary on May 4, 2016

How real estate consultants are trying to confuse home-buyers

India-Real-Estate-MarketVivek Kaul

One of the bigger problems with Indian real estate is that there is almost no independent data available for consumers to trust.  For instance, you may want to buy a home in a particular locality, how do you find out what the going price is?

Till very recently you would have had to call up a relative who has some idea of these things. Or you would call up a real estate broker. The real estate broker does not always have the best interest of the buyer on his mind simply because for him it is a one-time transaction.  He is unlikely to be dealing with the buyer ever again. With the advent of websites one can get some idea of what the price scene is in a particular locality.

The point being that the insiders who are a part of the real estate sector in India have no incentive in making things easy for the end consumer. And on most occasions they are bound to mislead.

Take the case of real estate consultants who are the major source of data when it comes to the real estate sector in India. Here is one instance where an attempt has been made to mislead prospective buyers. As Ashwinder Raj Singh is CEO – Residential Services of JLL India points out in a June 2015 column in The Indian Express: “Rental yields vary across the globe, but an average of 2 per cent of rental yield is considered a good deal for residential properties in India.”

Rental yield is essentially the annual rent that can be earned by renting out a home divided by its market price. Singh goes on to write: “In India, the cities which currently offer a higher rental yield are Mumbai, Pune, NCR-Delhi, Bengaluru, Kolkata, Chennai, Hyderabad, Ahmedabad. All these cities offer a rental yield of 2 per cent and above, and you can be assured that the average is not going down anytime soon. Investing in these cities will offer you the maximum returns on investment in properties bought for generating rental income.”

What is Singh saying here? You can hope to earn a return of 2% or a little more, by renting out a home, almost all across metropolitan India. The question is why would anyone in their right mind invest when the prospective return is 2%? That Singh does not tell us. And this when most savings bank accounts pay an assured return of 4%. There are banks which even pay 7% interest on their savings bank accounts.

Further, earning a return by depositing money in a savings bank account is a very easy of making money in comparison to earning a rent by buying a home. Real estate investment comes with its share of hassles. And earning a 2% return for those troubles is simply not go enough.

Singh of JLL India then goes on to say that the rental yield of 2% is not going to go down any time soon. Well, hasn’t it gone down enough already?
The second question is why have real estate consultants now started recommending real estate as a mode of earning a rental income. As anyone who has ever invested in real estate will tell you, investors buy real estate in the hope of making capital gains. Very few investors buy real estate in the hope of earning a rental income. There are easier ways of earning a regular income than through renting out real estate.

The problem is that real estate prices have not gone anywhere in the recent past. As Atul Tiwari and Rishi Iyer of Citi Research point out: “Different data points continue to suggest broad-based deceleration in residential prices across India. Residential prices grew just ~0.5% year on year as on March 31, 2015.”
The Citi analysts have used data from Prop Equity. They further point out that prices had been rising at double digit rates before this.

Data from Liases Foras, a real estate research and rating company, shows a similar trend. The average price in six cities (Mumbai Metropolitan Region, National Capital Region, Hyderabad, Chennai, Bangalore and Pune) went up by around 1%, for a one year period ending on March 31, 2015.

So, the insiders are telling us that the real estate prices have stayed almost flat over the last one year. And this explains why Singh of JLL India had to write a column pitching rental income of 2% that can be earned from investing in real estate.

In fact, there is enough anecdotal evidence to suggest that prices have fallen by almost 20% in many parts of the country. Given that there is no neutral agency putting this data together, there is no way of knowing how bad the scene is at the aggregated level. My guess is that it is much worse than what the real estate consultants are telling us.

All the price and sales data that is currently available comes from real estate consultants. And they have an incentive in the real estate prices continuing to go up. Their incomes depend on it.

Hence, there is a clear need for an independent agency which collates real estate data in the country. This will be a huge help to genuine real estate buyers who want to buy a home to live in. Hope the Modi government is listening.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Yahoo India on July 22, 2015